Update: Humana to Buy Tennessee's Cariten Healthcare for $245 Million

LOUSVILLE, Ky., Aug 05, 2008 (A. M. Best via COMTEX) -- HUM | Quote | Chart | News | PowerRating -- Humana Inc. said it plans to buy Cariten Healthcare for $245 million cash. The company serves commercial, Medicare and Medicaid members throughout eastern Tennessee.

Humana will buy the health benefits company from Covenant Health, a health care system based in East Tennessee. The acquisition will boost its commercial and Medicare Advantage medical membership by about 110,000 people, Humana said.

At midyear, Cariten's medical membership included 46,000 Medicare Advantage members, 34,000 commercial fully insured members, 30,000 members in commercial administrative-services-only plans and 99,000 members in Medicaid ASO plans.

The acquisition needs regulatory approvals from the Tennessee Department of Commerce and Insurance and the U.S. Centers for Medicare and Medicaid. It also needs clearance from the U.S.Department of Justice and the Federal Trade Commission.

Humana's national presence, local management and broad product array, along with Cariten's local market presence, will result in better benefit offerings for East Tennessee consumers and employers, said Humana of Tennessee President Evans Looney in a statement.

The deal won't materially impact its full-year 2008 earnings guidance, Humana said.

On the same day it announced the pending acquisition, Louisville, Ky.-based Humana (NYSE: HUM), a top U.S. seller of Medicare prescription drug plans for seniors, reported a 3.2% drop in second-quarter net income, to $209.9 million. The health insurer's consolidated benefits ratio, or benefit expenses as a percentage of premium revenue, increased to 85.0 from 83.4 on higher claim expenses in its stand-alone drug plans.

Enrollment in its more comprehensive Medicare Advantage plans grew to 1.34 million, a 19% gain. Total revenues jumped 14.4% to $7.3 billion.

The 5-year-old Medicare Advantage program, meanwhile, will see billions slashed from its budget, as Congress last month successfully overturned a presidential veto of legislation calling for the cuts (BestWire, July 16, 2008).

President Bush moved July 15 to veto the Medicare Improvement for Patients and Providers Act. The administration claimed the legislation ? which cuts $12.5 billion over the next five years and $47.5 billion over the next decade from Medicare Advantage plans ? would undo advances brought about by 2003's Medicare Modernization Act.

(Corrects the amount in the headline)

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

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